The morning started the same as any other.
Set my coffee maker, took the dog outside, booted up the computer, sat down, and started scouring the news.
Except, when I tell you how close I was to having to go out and buy entirely new equipment, you might not believe me.
I'm serious - if I had played one fewer game of spin the bottle in high school, I'm not sure I would have had the strength to stop a full-on spit take of my coffee at what I read...
Direct from an analyst at Citigroup came the following:
The current sentiment in this market is much more dangerous than anything going on with any index, ticker, or ETF.
Except I'm here to tell you not only is this recent narrative blame game not helping anything, it's flying directly in the face of the truth.
"This isn't the banks' fault. It's yours and your silly little feelings."
I mean, just think about the implications of that statement and how absolutely bat-S crazy they are.
Unfortunately, not everyone is really thinking critically about this. Far more are just blindly accepting these statements as truth.
In case you were wondering why we were seeing the financial sectors get a little bit of strength on the markets today, this is your answer.
Now, seeing the market be driven by sentiment is nothing new. The sentiment is a perpetual force in day-to-day activity.
But this is something different altogether. This is the market and analysts attempting to rationalize the banking failure we saw earlier this month by putting all types of labels on it.
But it's not just the banking failure being rationalized here. By saying that we're not in a banking crisis, they've more or less given the green light to traders to start rationalizing the "hope trade."
"If the sky isn't falling, that means the elevator could be going up, right? Right?"
Woah buddy, pump the brakes.
So, you're probably wondering how I know our current situation is different from a "sentiment contagion."
Well, take a look at this headline...
In the above CNBC piece, Mark Williams, a former Federal Reserve examiner, said "the deal was getting stale." Ultimately, the bidding came down to First Citizens and Valley National Bancorp.
Let me translate "sweeten the terms" for you: Nobody wanted this piece of crap.
Now, if this were just as easy as a bank going under with no risk of contagion in the broader financial sector, this deal would have gotten done without any sweetening.
The company would have gone in, looked at the books, and badda bing, badda boom, "here's what we'll pay."
It shouldn't require the Fed to come in to sweeten the pot. This should be a business decision.
Instead, it's just one example of a countless number in the current market, and the Fed is trying to stop the dam from breaking by plugging a couple holes with their thumb and index finger.
So, the biggest fallout from all of this is - ironically, considering that first headline we showed you - sentiment.
Let's go ahead and throw on Track 1 of CJ's Greatest Hits* and pull up the Sentiment Cycle chart...
(*Not to be confused with Track 1 of CJ's Christmas Jamboree.)
The fact that we're talking about this as a sentiment problem and not a banking problem tells you that we're still, at least partially, in a stage of disbelief.
We have not yet accepted the fact that this is a problem on a widespread scale.
It's only at the point when people realize how disconnected sentiment is from reality that we finally reach despair.
I remember back in 2008 when everything was just a sentiment problem. That is until it wasn't.
But there is one place where that acceptance has already occurred...
Bonds.
While analysts make excuses that this is just a "sentiment contagion," the bond market is starting to bulk up.
You see, this financial contagion affects more than just banks, it also affects liquidity.
There are already a couple of signs right now in the bond market that liquidity is taking a turn for the worse.
The iShares 20 Plus Year Treasury Bond ETF (TLT), after making a nice little rally, is starting to roll over.
This matters, because TLT was truly the safety trade for a couple of weeks.
We went up to $108 on the TLT before it stuttered and settled around the 200-day moving average (MA200) at $102.
Our next level will be that $100 mark and there are some indicators across the bond market that support us reaching that level.
For example, let's take a look at Treas Yld Index-10 Yr Nts (TNX)...
The activity on the TNX tells us that the bond traders are expecting the Fed to be a little more resilient.
Even though we're all looking at the Fed curve right now that says "no more increases," this is either a sign that the increases are here or coming - or that the bond market's going to slow down.
But, similar to the financials, there's another leader in the bond market that we can use to inform us: SPDR Bloomberg High Yield Bond ETF (JNK).
These are the bonds that are at a higher risk of defaulting but offer higher yields as a result.
Back during The Big Short times, these were the first ones to go.
Well, I heard an interesting thing on CNBC yesterday that said there have been no issues with those junk bonds since the beginning of March.
This is telling us that the credit market has tightened.
It's akin to the IPO market going completely dry last year.
The riskier side of the equity market is the IPOs. When you want money, you go to the IPOs. When you need money when you're already operating, you go out and start issuing bonds.
Well, that bond market has not frozen up.
If we see the JNK break below that consolidation it's been showing at that $90 level, it's going to tell you that the bond market is going to get a little bit slower as well.
And sometimes with the JNK and TLT, you'll see a little bit of convergence (a.k.a. opposite movement). Well, they're now starting to move together, which casts a little bit of light on the bond market in general.
I don't like to see this, and neither should you.
So, again, we need to watch the TLT levels closely down to $100. But, most importantly, we need to keep our eyes on this consolidation, because if we take out the $88 on the JNK, that's critical.
If that happens, that's the bond market telling you that there's a larger problem than "sentiment contagion."
In fact, it's as clear a sign as any of exactly the type of financial contagion analysts are trying to deny.
The post The media just blamed you for the banking crisis appeared first on Penny Hawk.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.